Electricity (Privatisation) (Hansard, 12 December 1988)

§ 12. Mrs. Fyfe
To ask the Secretary of State for Energy what are his proposals for price controls after the privatisation of the electricity industry.

§ 17. Mr. Murphy
To ask the Secretary of State for Energy what are his latest proposals for price control on the privatised electricity industry.

§ Mr. Michael Spicer
Prices charged for supply will be regulated by an RPI - X + Y formula. Separate controls will apply to charges by the national grid company and by the supply companies for use of their transmission and distribution systems.

§ Mrs. Fyfe
When the Under-Secretary spoke in Miami earlier this year he was anxious to reassure American capital that the industry would be lightly regulated. Does he stand by that statement? Is he really more anxious to please American capital than the British domestic and industrial electricity user?

§ Mr. Spicer
The measure of regulation will depend on the degree of competition that we can introduce into the industry. At the generating end of the industry, which represents 70 per cent. of costs, there will be a lot of competition and, therefore, light regulation.

§ Mrs. Fyfe
Answer the question.

§ Mr. Spicer
If the hon. Lady will listen, I shall answer her. At the distribution end of the industry, where there is not so much scope for competition, there will be heavier regulation, aimed at ensuring that the consumer benefits all round.

§ Mr. Murphy
Does the Minister agree that the 15 per cent. increase in electricity prices, which was double what the electricity industry wanted, will have the most disastrous effect on electricity-intensive industries, including the British Steel Corporation in south Wales? What guarantee does he propose to give the House that the burden on industy of increased prices will not be worsened by privatisation?

§ Mr. Spicer
Under privatisation, there will be pressure on costs and therefore price rises will be considerably smaller than they would be in the state-controlled industry. During the past five years of Conservative Government, prices for the domestic consumer have decreased by 10 per cent. in real terms, whereas during the last five years of the Labour Government they increased by 636 30 per cent. The hon. Gentleman will know, too, that as a result, British electricity prices now fall within the middle range of European prices. I hope that that answers his question.

§ Mr. Morgan
When the formula RPI-X+Y formula is applied, will the baseline used be that requested by the electricity industry, which asked for price increases half as great as those imposed by the Government last April and next April or will it be the much higher baseline that the Government have decided to put to the industry as a form of hypothermia tax? Will Ministers realise that the example set by the Government last April and this April is the one that the industry will expect to follow and do they not now agree that the 15 per cent. price rise is an absolute disaster for the electricity industry and, above all, its consumers?

§ Mr. Spicer
The hon. Gentleman does not realise, but will no doubt discover, that the Government do not lay down prices. We set financial targets for the industry. In a monopoly controlled industry those targets are often interpreted in terms of costs being passed straight through into prices, rather than there being any actual effect on costs. Under privatisation, great pressure will be placed on costs. Therefore, Opposition Members' fears will prove unfounded as they are based on the premise that costs must always be passed straight through, into prices which we do not believe.